China sets growth bottom line at 7%

TOLERABLE:：Li Keqiang was quoted as saying that the government would not allow growth to fall below 7 percent to achieve its goal of building a prosperous society

Bloomberg

Wed, Jul 24, 2013 - Page 15

Chinese Premier Li Keqiang’s (李克強) government sees 7 percent growth as the bottom line for tolerance of an economic slowdown, Chinese news organizations reported, signaling the nation will act to support expansion if needed.

Expansion below 7 percent will not be tolerated because China needs to achieve a moderately prosperous society by 2020, a commentary published on Sunday by Xinhua news agency said.

Li said at a recent meeting with economists that 7 percent is the “bottom line” and the nation cannot allow growth below that, the Beijing News reported yesterday.

The economy expanded 7.5 percent year-on-year in the second quarter, slowing from 7.7 percent in the first quarter and 7.9 percent in the final quarter of last year.

China’s benchmark stock index rose the most in almost two weeks as investors speculated the government would lift spending on railroads and environmental gear to maintain economic growth of at least 7 percent.

The Shanghai Composite Index gained 2 percent to 2,043.88 at the close, with trading volume jumping 16 percent from the 30-day average, while the CSI 300 Index advanced 2.9 percent.

“The comments confirmed that the government’s acceptable range for growth this year is between 7 percent and 7.5 percent,” said Chang Jian (常建), a Hong Kong-based economist at Barclays PLC who formerly worked for the World Bank. “As economic growth is slowing to below 7.5 percent, the government policy’s focus is gradually shifting to stabilizing growth.”

Other parts of the reports may add to confusion on the government’s tolerance for a slowdown. The Xinhua commentary said 7.5 percent is the “lower limit” for growth this year, while the Beijing News reported Li said the “lower limit” for China’s GDP expansion is 7.5 percent. The articles didn’t elaborate on the difference between a “lower limit” and a “bottom line.”

Chinese Minister of Finance Lou Jiwei (樓繼偉) said in a press briefing in Washington on July 11 that growth as low as 6.5 percent may be tolerable in the future. While the government in March set this year’s growth target of 7.5 percent, Lou said he was confident 7 percent could be achieved this year.

Xinhua later amended its English-language report on Lou to say there was no doubt that China could achieve this year’s growth target of 7.5 percent.

Shen Jianguang (沈建光), chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong, said 7.5 percent is the lower limit for growth this year and 7 percent is the boundary starting next year.

The government is already trying to support expansion this year with spending on railways, city infrastructure and environmental protection, Shen said.